A Municipal Electric Utility? Proceed with CAUTION!

After holding off writing about the possibility of establishing a Bainbridge Island municipal electric utility, the time has come for some electronic ink to flow on what I believe is perhaps the key decision point that is being ignored.

It has absolutely nothing to do with BPA or PSE’s electrical rates, the potential cost of acquiring the Bainbridge Island electrical grid system, or global warming or BPA’s Snake River dams and  Northwest fish  considerations.

It’s the “local control” issue and the City of Bainbridge Island’s failure to efficiently manage the financial aspects of the three existing City utilities for the benefit of the utilities ratepayers.  

City utility ratepayers have been financially gouged for years by excessive utility rates  … and still are for the Sewer and Stormwater utilities.

I wrote the following e-mail to the Electric Utility Municipalization Task Force, City Manager and City Council on February 27, 2017:

As you conclude your discussions on the D. Hittle draft report, two observations from a private citizen who has followed City of Bainbridge Island utility issues relatively closely for the past 10 years.

1. The City of Bainbridge Island has a fairly respectable reputation for operating the three current City utilities (Water, Sewer, Stormwater). It does not have a good record of cost effective management of those same utilities.


• In 2009, City water rates were among the highest in Washington State. A ratepayer lawsuit resulted in an outsourcing study, and the number of City FTE employees paid by that relatively small utility was reduced from 9.6 FTE to 4.2 FTE. At the time, each FTE costs approximately $120,000 including salary and benefits, not including the City Hall space rent charged to the water utility FTE’s. Residential water rates were subsequently reduced by more than 60%. The water utility currently has approximately $6 million in excess cash above required reserves … that represents roughly 3 years of water utility operating and capital improvements.

• The Waste Water Treatment Plant improvement project was originally estimated to cost $4.3 million. After costs exceeded $9 million, a single City Council member noted the costs were climbing, and the then Public Works Director assured the City Council the final project would not exceed $11 million. It concluded at $15.8 million. Near total lack of cost oversight and control on the part of the City.

• City sewer utility rates are the highest of any comparable Western Washington State City as documented in the City’s 2015 Sewer Plan. That in part is because of the relatively small sewer district and the WWTP upgrade cost, but it’s also a cost allocation problems with the City charging 9.79 FTE (some 41 individual City employees) to the Sewer Utility fund. City Council will not take up the issue likely because the City’s cost allocation plan is too complicated to understand without multiple hours of research and they don’t have the necessary auditing skills, and any personnel changes would mean shifting costs over to the General Fund which both staff and City Council are loath to do because the needs of the general fund are perceived to be near endless.

• Annual City stormwater 2017 rates at $169 per ISU are “justified” by a program that funds multiple programs outside the City’s Municipal Stormwater System (program bloat), some of which have no proven benefit to Island residents. Stormwater is the City’s largest utility from an FTE standpoint … it’s been increased to 10.42 FTE for 2017. City staff and City Council refuses to reign in this utility to where it is cost effective.

The average FTE cost for salary and benefits exceeds $133,000 in 2017, and City also collects City Hall space rent for utility FTE’s along with other costs allocations, such as insurance. Additionally, they collect a City tax from the utility rates.

2. I don’t see sufficient discussion or cost data in the D. Hittle draft report on what a pole, transformer and service equipment yard and electrical grid control facility would cost. I toured the Jefferson County utility base site, and it’s quite an extensive operation. Acquiring land and getting NIMBY issues solved on Bainbridge Island are not insignificant issues if the City does not already have sufficient City owned property.

In the big picture, I think the City could acquire and properly operate a Municipal Electrical Utility. But a LOT would have to change in this City to give any confidence that an electrical utility could be cost effectively operated and managed based on this City’s past and current utility financial management. Cost of system acquisition and current/ future BPA rates vs. PSE rates per Kwh are not the most relevant issues … it’s the ability of the City to financially efficiently manage a municipal utility that looks out for the interests of City ratepayers and not so much the City’s General Fund that is so sorely lacking in the City of Bainbridge Island.

And that is (in my opinion) the single most important issue in this upcoming decision that the D.Hittle report does not, by contract scope, discuss.

Island Power claims Bainbridge Island residents will have future lower cost electrical power if the City owns and operates its own municipal electric utility.

Unless the City of Bainbridge Island  gets a new City and Deputy City Manager, a new City Council, a new Finance Director, a new Public Works Director, and a Utility Advisory Committee (or something similar) that actually looks out for ratepayers and doesn’t use  utility fees to augment the City’s General Fund, electrical rates will almost certainly be higher with a locally controlled electric utility because the City will almost certainly use the new utility to unduly augment the general fund with cost allocations, rents and utility taxes like it currently does with its existing three utilities.

No consultant report is going to show how this City has creatively found ways to siphon utility ratepayer money to support general City operations. 

Proceed with CAUTION.

Better yet, don’t proceed at all.

(Note – this posting is supported by facts, not alternative facts).








Update on SSWM Utility Fees

The City Council (CC) approved the 2017-2018 biennial budget 22 November 2016. There is a lot to say about that budget, but first, an update on the SSWM utility fees.

The CC increased the SSWM fees 15% for 2017, and did not act (yet) on the City staff proposed additional 12% increase for 2018.

Single family resident properties and condominium owners now are assessed $169 annually for stormwater fees. Businesses, the Park District, the School District, the library, churches, private schools, farms with large stables and/or barns, etc. are assessed $169 for each 3,000 square feet of impervious surface.

That can amount to a sizable chunk of money.

Some examples:

IslandWood                                       $ 7,774
COBI, Prichard Park                      $16,565
St. Barnabas Church                      $ 3,551
High School, Admin, Ordway    $56,446

The stated purpose of the SSWM fee increase was to pay for new capital projects, namely deep culvert replacements.

There is a smidgen of logic to that since the estimated costs of replacing deep culverts may exceed $1 million each … and up to $5 million or more if a fish lives somewhere in the waters that flows through the culvert. You can blame the Department of Fish and Wildlife hydraulic permit rules for those ridiculously high costs for high end stream simulation culverts, meaning  flowing water isn’t supposed to touch either  side of the culvert in a 100 year flood scenario.

But the City added staff being paid by the SSWM utility to support a number of discretionary programs that don’t contribute anything useful to the SSWM utility.

In actuality, the SSWM fee could and should have been lowered if the City would stop paying for programs and consultants that have nothing to do with the original intent of a stormwater utility, and that intent was to pay for stormwater infrastructure and maintenance to prevent urban flooding by having  a municipal stormwater (MS4) infrastructure system such as storm drains and storm water piping, ditches, and retention/detention ponds, and discharging stormwater that is as free of pollutants as reasonably possible.

This City, admittedly along with some others, have expanded the utility from it’s state law initial to include any number of Clean Water Act  and other discretionary programs. No problem with that if those programs would actually clear up water quality problems or reduce urban flooding, but they don’t. City Council seems simply oblivious to what they are really spending utility money on and how ineffective those programs are as they are currently being administered.

And the City’s overhead charges are significantly too high … somewhere in the 60%-70% range.

The one positive action the City Council did for the SSWM utility is earmark $50,000 for a SSWM efficiency study, likely initiated because of this blog and six years of messages and committee public comments that the SSWM utility needs to be reigned in and made efficient.

It’s a reflection on management that this City can’t itself discuss and figure out what a proper and cost efficient level of personnel is needed to run an enterprise fund business that has fewer than 10.5 employees. And it’s an even scarier proposition to think this City is even considering taking on a much larger electrical utility!

Some citizens remember the COBI’s water utility was cost allocating 9.6 FTE (Full Time Equivalent employee) to the water utility and the City had excessively high water rates. The City was forced by a citizen lawsuit to do a competitive study, and a consultant hired to do an efficiency study concluded the water utility could be operated with 3.9 FTE. Our City Manager objected, but reluctantly agreed to 4.2 FTE. Water rates were subsequently reduced by more than 60%, and the water utility, although now with 4.7 FTE,  is still operating at a revenue to expenditure break even level.

SSWM has a similar excessive cost allocation problem. Too many employees being charged to the utility, and programs in the utility that are either not effective or are being paid for by the SSWM utility when they more properly should be paid for by the general fund.

An average City employee now costs in excess of $133K a year, and so every FTE charged to the utility is a significant expenditure.

The City Council also decided to keep the 6% tax on the SSWM utility, although at least three Washington court decisions have ruled what can be taxed is the proprietary functions of a utility (think business sales, like water service or sewer service), and not general government functions, such as sweeping streets or measuring bugs in streams or maintaining the City’s weather station. Virtually all of what the SSWM Fund pays of a general government nature … after all, the SSWM fee itself has all the characteristics of a general tax since the City doesn’t provide  any specific service or product to the individuals who pay the fee … it’s a utility to pay for the City’s MS4 system maintenance and operation, which is City owned  public infrastructure.

It’s an interesting circus of decisions at City Hall.

Major Fee Increase Proposed for Stormwater Utility

City of Bainbridge Island staff are recommending a 28.2% SSWM fee increase in the City’s 2017-2018 proposed biennial budget.

Councilman Roger Townsend, the Council’s ex-officio to the Utility Advisory Committee, supported the increase at Friday’s Council retreat.

Roger Townsend’s recommendation to the Council was not backed up by substantive analysis or discussion. He has shown in City Council and committee meetings he is not a financial detail individual, and his recommendation appears to be based on some City staff questionable and flawed  projections and the woefully unengaged Utility Advisory Committee (UAC) discussion on the SSWM budget at their 28 September meeting. UAC Chairman Andy Maron has promoted a SSWM fee increase for more than a year, and he considers  financial details and SSWM utility program evaluations as something the UAC should not be doing because the City Council has not asked the committee to do so. He also made it abundantly clear the Utility Advisory Committee does not exist to represent City utility ratepayer’s interests, and that unfortunately is true. Nobody represents utility ratepayer interests in this City government. 

SSWM fees could remain where they are or even decreased if this City operated a financially efficient stormwater utility that didn’t add a host of discretionary and science data gathering programs.  Higher than required stormwater utility fees have existed for  years, and that’s now proposed to get even worse.

The  City  is also using the SSWM utility to augment the general fund by taking utility ratepayers money and using it other than its Washington State legally intended purpose of flood control and storm drains for the municipally owned and operated stormwater system.

Staffing Levels: The City’s proposed Cost Allocation Plan has 10.42 Full Time Equivalents (FTEs) paid from the SSWM Fund.

Forty-six  individual city employees will have all or some of their salary paid by the SSWM Utility.

The field workers (storm drain maintenance, street sweeping, ditching, spoils hauling, culvert maintenance, etc) are budgeted at  3.92 FTE, including field supervision. The City’s pollution discharge permit (NPDES-II) has 1 FTE Engineer and a .7 SSWM technician budgeted, but this is a mature program running on almost automatic, and that adds up to  more personnel hours than needed.

A total of 5.62 FTE are doing SSWM utility field type work and managing the stormwater  (NPDES-II) permit requirements, including the required part of water quality monitoring.

City now contracts out almost all stormwater utility construction work, and this takes some engineering and contract time … add .5 FTE for engineering and .5 for contract/invoice  work.

It should take 6.62 FTE to do the SSWM utility and permit work (and that’s probably liberal on FTE’s labor hours).

The remaining 4.5 FTE are a product of SSWM utility cost overhead allocation. That is about 2.5 FTE higher than a financially efficiently run utility should require, and with the average personnel cost projected at $131,400 per employee, the excessive personnel cost allocation is in the range of $325,000 a year. 

Salary and benefits for this supposedly small storm drain utility are $2,462,060 in this biennial budget. That’s $4,944 a city workday in city personnel costs alone, not counting the consultants they hire for field work and data keeping.

Rent: The City proposes charging the SSWM utility $290,008 “rent” for the SSWM utility cost allocated employees using City Hall. This money simply transfers from the SSWM Fund to the City’s General Fund.

Local utility tax: It’s against state law for COBI to directly transfer money from a utility fund (fee collected for a specific purpose) to the General Fund. One way to circumvent that prohibition is to call it a tax and then there is no limit. Cities do not have to charge local utility taxes, but many do just because they can, or they collect their overhead costs if they do not have a cost allocation system.  COBI currently charges a 6% local utility tax. That’s $299,400  SSWM utility ratepayers would contribute to the General Fund from stormwater fees in the proposed biennial budget. The utility doesn’t benefit from this tax … it’s simply money transferred so the City Council can spend it on whatever they decide to spend it on.

Repairs and other improvements: For the last five years, the SSWM utility has been averaging $207,000 a year in “repairs and other improvements.” The proposed biennial budget, the City proposes $1.03 million … no explanation for the $616,000 increase. Public Works Director Barry Loveless  told the UAC the increase was simply an accounting  shift moving the utility annual programs from the capital budget to the operational budget. But there appears to be a shift to contracting out virtually all small jobs that, let’s say, require a backhoe, such as installing a non-complicated drain culvert.

Two significant new programs need mention in an balanced discussion on SSWM rates.

First is an Ecology requirement to have low impact development rules in place by 1 January 2017. Those new rules are a paradigm shift in land development, and after ignoring the deadline for almost three years (probably because the City was up to its ears in the Comprehensive Plan rewrite), the City has hired consultants to draft the Municipal Code changes and write new development regulations. How low impact development is going to be paid for is not on the City Council’s agenda. It’s a stormwater related issue, but it’s a land development and monitoring cost that has little or nothing to do with the City’s stormwater infrastructure. The choices are to increase permit and development fees, pay from the General Fund, pay from Stormwater utility fees, perhaps obtain an Ecology grant at least to get started, or some combination of these revenue sources.

Second is a deep culvert assessment that provides convincing evidence that at least the McDonald  Creek culvert under Eagle Harbor Drive needs repair or replacement. That single culvert  project is projected to cost more than $1 million.

And finally, it should not be lost on the City Council that a previous Council decided to classify City streets and roads as part of the City’s stormwater sewage system so the City could cease paying stormwater impervious surface charges for City roads. That decision to reclassify streets and roads removed a $900,000+ a year transfer from the General Fund to the SSWM Fund, although the City arbitrarily decided to pay only 30% of that impervious surface fee (about $260,000 a year).

So now, not only does the General Fund not transfer funds to the SSWM Fund, the SSWM Fund moves money to the General Fund through cost allocations, employee space rental charges, and utility taxes. The SSWM  Fund  annually pays a significant portion of their non-capital expenditures to the City’s General Fund.

There is no more regressive collection of citizen money than this City’s SSWM fee. The utility  also pays for a number of  discretionary programs that do nothing meaningful for the utility, but this City has no program review for program effectiveness, and the City Council is not about to upset the status quo because program evaluations might lead to personnel changes and reduce revenues to the General Fund.

The SSWM utility remains a relatively muddled mess of various costs and charges and programs, and it’s about to get a large revenue boost from a City Council that simply doesn’t comprehend the issues because they hear only from a City staff that wants to protect their General Fund revenue more than they want to put utility customers first and run a cost effective stormwater utility.







Multimillion Dollar Questions for the School District

In 2015, the Bainbridge Island School Board and approved a capital projects levy request for $81.2 million to replace Blakely Elementary and High School Building 100.

The bond levy was based on a $39 million estimate to replace Blakely Elementary, and  $42.2 million to replace Building 100.

At the time of the bond campaign, Bainbridge.exposed researched the current building costs and school comparisons used by the School District and approved by the School Board and concluded in a January 25, 2016 posting:

“Conclusion: A bond amount of $39M for Blakely is about $9 million more than what the school should cost. Blakey Elementary replacement should be in the range of $29M-$30M.”

This civilian cost estimate was totally dismissed by the School District, some members of the School Board, and  very strongly disparaged by some school supporters on social media.

As would be expected on Bainbridge Island, island voters approved the school bond capital projects levy.

Mithun, the School District’s architect for Blakely Elementary has completed a 290 page Educational Specification Document, and it is now posted to the school district’s website. The budget page:




Using the additional costs experiences at Wilkes Elementary and adding an inflation factor, the additional soft costs will likely be between  $4.8 million and $5 million (they were $4.6 million for Wilkes discounting land acquisition and a new water main costs). That includes an extensive laundry list of costs including architect fees, special consultants, permit fees, utility fees, new furniture and playground equipment, new computer and tech equipment, building commissioning costs, etc.

An additional $5 million (high estimate) for additional soft costs would leave some $7.7 million of the bond levy’s advertised $39 million for Blakely Elementary still unexplained IF the construction cost of Blakely is  $26,291,948 as the recently released Educational Specification document states. However, that “fixed” construction cost figure may change as the project is designed and actual construction bids are considered per Tamela Van Winkle, BISD’s capital projects manager.

For Wilkes, there is still slightly more than $3 million of the bonds $32 million the school district seems not to have informed the public how the money has been or is planned to be used. Capital projects staffing likely accounts for some of that, but that’s a small staff, and  there was also an additional $10 million in the Wilkes replacement  bond levy for additional BISD capital expenditures, none of which were specifically detailed to island voters.

Bainbridge.exposed position is that voters who approve multiple millions of dollars in property tax levies deserve full and open transparency on where the bond(s) money is being expended.

Pretty simple, straight forward concept.

The Blakely Elementary School capital project is still an early  work in process …and this blog is just following money trail.





City Council Fails to Fix Cost Allocations (Mostly)

In July, the City Council had the City’s proposed cost allocation budget pitched to them by the City’s cost allocation financial staff manager.

As can be now be expected from this municipal administration, the City Council was NOT provided a copy of the actual cost allocation program that City taxpayers paid a consultant to draft. That maybe makes sense because it is long and so complicated that nobody on this City Council would understand it … just like the Council that initially received the consultant’s work. Except that original Council actually admitted they didn’t understand what the consultant had presented.

The City Council also was NOT provided a copy of the personnel listing or time allocations that are being charged into the cost allocation program. That’s readable and understandable with even a minor amount of brain capacity.

Instead, the City financial staffer provided a 30’ish page condensed version of what cost allocation is (pretty much a repeat from past years), and a couple of cherry picked and carefully worded examples that makes the uninformed think the City’s cost allocation program is well thought out and in the public interest.

The newbies on the Council were apparently impressed, especially Councilman Kol Medina. He praised the presentation.

Kol Medina has the potential to learn some of the cost allocation flaws as his Council years pass.

To those who understand cost allocation, it was yet another staff budget presentation and Council action that will continue to financially fleece both the sewer and SSWM utility ratepayers.

Additionally, the City Council never asked why the Streets fund is cost allocated … the result of that is the City never seems to have enough money for road work because too much of the street fund money that should be spent on capital street improvements is instead being used to pay for City staff … as of this year, a portion of 46 City employees get some of their salary and benefits  payed from the Streets fund.

In the big picture, the City Manager has made it perfectly clear that both protecting and diversifying the City’s General Fund revenue streams trumps virtually all funding decisions at City Hall. This City Council is fully supportive of that management philosophy. And that’s not all bad … but in financially really good times, which we are currently experiencing, this City doesn’t have to have two utilities and the street fund contributing an undue amount of money to the general fund in rather arbitrary salary, benefits and rents.

Sewer utility ratepayers will continue to pay some 50+ city employees a portion of their salary and benefits and charge them rent for using City Hall real estate.

SSWM utility ratepayers will continue to also pay 50+ city employees some portion of their salary and benefits and charge them rent for using City Hall real estate.

This is simply excessive. 

Only the COBI water utility has reasonable cost allocation, and that came about by ratepayer litigation and the City reduced that utility’s cost allocation by more than half. It appears the only way this is ever going to be fixed is by ratepayer litigation, and that is very expensive.

The one half decent decision the City Council made related to cost allocations was to change the City’s cost allocation relatively expensive (and not required by Ecology) Water Quality and Flow Monitoring program from the SSWM Fund to a 50%-50% share between SSWM and the General Fund.

The City’s continuous (24/7/365) water flow monitoring program is still this City’s most useless program since the years of data hasn’t been used for any useful purpose (it is filed with consultant help in the City’s water library), but this City Manager and City staff have no program reviews to evaluate existing programs and evaluate their effectiveness or  lack there-of.

They did shifted the Groundwater Monitoring program from COBI Water Utility ratepayers to the general fund. That has been a no brainer for years because the groundwater monitoring program is of benefit to all island residents not just the 25% or so who pay for City water. It’s not a lot of money, but Sarah Blossom gets a shout out for FINALLY getting that small cost but obvious cost allocation problem brought to a Council vote. About six years late … thank you COBI water ratepayers for funding this for many years.

In summary, the Council was yet again bamboozled by City staff on the big cost allocation issues, but they at least chipped away at a couple of small issues. That’s slightly better than nothing.

lf I were grading the City Council on cost allocation fixes (and I am), I would give them a 1.5  of 10.



Major City Council Budget Test: The Cost Allocation Program

The City’s staff is now working on the City’s 2017-2018 City budget that will be made public (probably) at the 27 September City Council business meeting. The biennial budget lays out where some million$ of taxpayer and ratepayer’s dollar$ and some grant funding are going to be spent in the following two years.

The City Council will raise property taxes the maximum extent allowed by state law … that’s a virtual given.

New hires will be proposed … and at an average cost of over $125,000 per city employee, that’s no small dollar matter since any new personnel expenditures will most likely continue on for many years. But, the population is increasing and that means a larger  municipal government.

But before the dividing up of the dollars into priorities and programs, the City Council has their once every two year opportunity to “fix” the two most unjust and broken programs in the current City budget.

This post will discuss the first: The Cost Allocation program.

The citizens and organizations getting financially screwed are primarily the COBI sewer ratepayers and storm and surface water (SSWM) ratepayers. That’s less than 25% of the island’s residents but includes most of the Island’s businesses.

In the simplest of terms, the City’s cost allocation program allocates financial charges for staffing overhead to the City’s General, Street, Water, Sewer, SSWM, Development, and Building Funds.

This post will focus on just three utility funds (Water, Sewer, SSWM) since those funds are enterprise funds where the City runs a monopoly business and ratepayers pay a utility fee for services provided.

Cost allocation includes salaries, benefits (an additional roughly 40% on top of salary expense) and “rent” for the allocated employees  use of City Hall space. “Rent” includes a collection of charges, some logical and others,  such as depreciation costs for City Hall and the farmer’s market area and even the land on which it is built, seemingly illogical. And not only do the lucky utility ratepayers pay off the City Hall debt with their property taxes, they get an additional whammy by having bond interest payments and depreciation charges included in their utility rates.

Ratepayers aren’t complaining.

It is probably because citizens don’t have the  time to read and understand the City’s cost allocation system, and/or they believe the City staff and City Council are looking out for them as utility ratepayers, which is a fundamental role of a City Council.

Being unable to decipher the cost allocation system is the norm.

Having City Council look after the interests of utility ratepayers is only a theory … it has happened only once in the past decade when Steve Bonkowski and three other  members of a past City Council took over a meeting agenda item and reduced the water rates a second time over the objections of the City Manager and staff.

Overhead charges for City utilities are clearly appropriate, but what is broken in this City, and in many other Washington State cities, is that with the 1% plus new construction limitation on annual tax increases, governments have intentionally and creatively increased  general government revenue by cost allocating an increasing percentage of utility fees using cost allocation methodology and increasing local utility taxes.

It requires considerable accounting skills to understand cost allocation … something the City Council members simply lack because there are no trained accountants on the City Council. Aside from their lack of accounting skills, it appears the Council has neither the  time nor interest to fully understand COBI’s cost allocation system.

It only took me some four years and maybe 20 public record requests to figure out how the financial staff  performs their calculations … and in my opinion,  no COBI City Council member has ever come even close to fully understanding  the cost allocation process.

So, here are some basics of how the City set up a cost allocation system.

When Washington State voters approved an initiative to limit the growth of property taxes some 16 years ago, the then Bainbridge Island Mayor announced utility rates would be increased by 21% to help make up for the expected general fund revenue slowdown.

That was only the start of a cost shift of paying for general government to city utility ratepayers.

A utility ratepayer’s lawsuit in 2009 resulted in an outsourcing study of the City’s water utility. The City was charging 9.6 FTE (full time equivalent) employees to the water utility when the study started. That included both direct labor and overhead.

A consultant hired to determine the efficient personnel allocation told the City staff the water utility could be properly operated and managed with 3.9 FTE.

Both the City Manager and Deputy Manager were tight jawed with that consultant recommendation, but City staff reluctantly settled on 4.2 FTE to fully operate and manage  the water utility.

The FTE reductions were 1 FTE from direct labor and 4.4 FTE from bloated cost allocations.

City water rates were subsequently reduced by more than 60% in two separate rate reduction actions, the last one during a testy City Council meeting that indirectly led to yet another expensive public records lawsuit.

The major lesson from the original ratepayer lawsuit was that the City’s cost allocation system for the water utility was grossly overcharging City staff hours to the water utility.

What previous City Councils have fail to recognize and fix is the very same cost allocation system also applies to both the sewer and the SSWM utilities, and they too have excessive FTE’s being paid by utility ratepayers.

The sewer utility is charged for a portion of  52 individual City employees work hours, as well as City Hall rent. That’s 69% of all City employees (less City Council, Police and Municipal Court).

Those 52 employees hour allocations add up to 9.5 FTE.

Three city employees (3 FTE)  run the City’s Waste Water Treatment Plant (WWTP), and about 1.2 FTE are used for various routine electrical and mechanical field work. The City contracts out all significant sewer system design and repair efforts.

The sewer utility FTE overhead is greater than 100%.

The City could have done the same type of efficiency study when they contracted for the new City sewer plan. The same financial sub-consultant was hired that did the water utility efficiency study,  but neither City staff or City Council included that common sense element in the sewer plan. I’m quite certain that exclusion wasn’t an oversight. It was a deliberate decision intended to maintain the existing sewer utility money flow into paying for more FTE’s than necessary at City Hall.

That’s the primary reason for this sewer rate comparison chart in the City’s new sewer plan:

BI Sewer Plan Rate Comparisons

When City Council members say the sewer rates are high because the City just refurbished the WWTP and that needs to be paid for, that was partially true. Of course, that capital project was originally costed at an estimated $4.3 million, and ran unchecked by the City Council until it totaled some $15.8 million, but the real reason for Bainbridge finishing at the top of this sewer costs chart is the City’s cost allocation system.

The SSWM utility has the same cost allocation bloat disease. It’s not the only bloat disease affecting the SSWM utility, but that’s a future post subject.

The SSWM utility has 56 individual City employees being cost allocated to that utility.

Those 56 employees hour allocations add up to 9.41 FTE.

Direct labor for the non-bloated essentials required for the SSWM utility to meet Ecology’s National Pollution Discharge Elimination Permit (NPDES-II) requirements about 3.0 FTE field workers and 1.0 FTE NPDES-II Permit Manager.

So yet another City utility with a staff cost allocated overhead in excess of 100%.

City staff can write a convincing document (there is a draft for City Council review on the City Council’s agenda as I write this), and the Council is scheduled to  discuss it at the 7 June 2016 City Council work session.

The problem is the City Council doesn’t go into the details, and all the big problems  with cost allocation are buried deep in the financial minutia.

So here are three big picture questions the City Council should be asking.

• What are the direct labor and indirect labor charges for the water, sewer, and SSWM utilities?

The draft cost allocation plan doesn’t go there.

Cost allocated overhead is going to be significantly  higher in the sewer and SSWM utilities. That’s because the water utility has  been subjected to an outsourcing study and unjustified  overhead was sharply reduced.  Similar but not as dramatic results would happen to both sewer and SSWM if the Council had the motivation to make the necessary and logical changes to cost allocations.  City utility rates could be fair and reasonable like the State Supreme court says they should be.

• What is included as city hall “rent” charges?

The draft cost allocation plan doesn’t go there.

Council might be interested in why interest payments on City Hall and City Hall land are being allocated to utility ratepayers when the bond is being paid by voted taxes and therefore being paid by all Bainbridge Island citizens, but sewer and/or water utility ratepayers are incrementally paying twice or three times.  And why the City staff charges depreciation for City Hall and playhouse land when (1) the land is  appreciating in value, and (2) the collected depreciation is not going into a fund to replace city hall someday … it just goes to the general fund to be used in whatever manner general funds can be used for, which is just about everything that’s legal for a City to spend money on.

• Council should ask City staff what a fair utility overhead cost allocation (percentage) overhead should be.

For example, the City of San Jose’s City Council set a percentage (11%) allowable overhead to their water utility and directed the City to operate within that boundary, and then the City Council hired an independent auditor reporting to them, not City staff, to validate the City was staying within that overhead charge boundary. That apparently has worked very well.

COBI would need a significantly larger percentage overhead than 11%, but sewer and SSWM are in excess of 100% overhead now, and a set percentage could be an approach to getting the City staff’s objective to shifting general government costs to utility ratepayers throttled back.

Chances of this happening?

I’m guessing pretty close to zero because nobody on this Council seriously wants to question City staff, and there is no noticeable appetite to make changes that could impact the general fund’s revenue flow.






PSE Bainbridge Island City Tax on Electrical Service

Bainbridge Island’s Municipal Code 3.88 and fee schedule impose a 6% of gross revenue tax on electrical service providers.

So I was puzzled why Puget Sound Energy bills 6.370% for “Effect of Bainbridge Island City Tax.”


PSE BI City Tax Charge


Obvious question that the City Finance Department could probably answer, right?


City Finance staff didn’t have a clue, and the City Manager pointed out that Public Record requests cannot ask city staff a question … public record requests can only request copies of records. That is true.

But since the question to the City wasn’t asked as a public records request, I surmised that response means a citizen cannot ask a reasonable question to City staff even though they supposedly work for us and we help pay their salary.

OK, whatever.

Since the billing comes from PSE, the question was posed to PSE customer service on their public website. They acknowledged receipt and stated a reply would be forthcoming. Didn’t happen.

Follow-up e-mail. No response. Another follow-up. No response.

Finally, after more than a month of follow-ups, finally an elementary and non-responsive answer simply saying PSE uses the tax rates published by the State Department of Revenue (DOR).

Good grief.

OK … question then posed to the Department of Revenue since they show a 6% City of Bainbridge Island tax on electrical service providers.

DOR was moderately helpful in stating that it’s complicated because gross revenue is an accounting calculation, and the Washington State Utilities and Transportation Commission, who regulate PSE rates, permits an administrative fee for PSE’s cost of collecting the tax.

Next inquiry sent to the Utilities and Transportation Commission to get their calculations. They confirmed what DOR had stated, but no specific details on the PSE billings.

Finally, after roughly four months of e-mails for an explanation, a PSE government affairs person at a local City meeting took on the question when I expressed my frustration with PSE’s  lack of responses and a non-responsive generalization.

Bingo … go up the corporate ladder to get an unanswered question answered!

So here is the answer as to why Bainbridge Island electrical users are paying 6.370% City taxes when the city council has set a 6% rate in the municipal code as researched and posted by PSE:

First I would like to provide some framework for what is shown as the “Effect of Bainbridge Island City Tax” on your bill. The Bainbridge Island City Tax is a tax on PSE equal to 6.0% of PSE’s gross revenue within the City of Bainbridge Island. The Washington Utilities and Transportation Commission allows PSE to increase the amount it charges customers within the City of Bainbridge Island to recover the cost of this tax. RCW 82.16.090 requires that PSE the rate, origin and approximate amount of each tax levied upon the revenue of the light and power business or gas distribution business and added as a component of the amount charged to the customer. PSE shows the effective rate of the Bainbridge Island City tax which is added as a component of the amount charged. Since the City Tax is added as a component of the amount charged it has the effect of increasing the gross revenue within the City of Bainbridge Island. PSE also pays a State Utility Tax and a State Filing Fee based on its gross revenue, which are also included in the amount charged and therefore both increase gross revenue even further. With each increase in gross revenue additional tax amounts become payable.

PSE reviews each city tax ordinance and based on the deductions from gross revenue allowed by the city PSE determines that appropriate rate to apply to the amount billed prior to the addition of the city tax so that the effect of increases in gross revenue due to taxes and the deductions from gross revenue allowed by the city are all taken into account. For example, with cities that have a 6.0% tax rate where the city allows deductions for state utility tax, the city tax and for uncollectible bills, PSE adds only 5.99% to the customer bill.  For a city that allows no deductions from gross revenue at all, PSE adds 6.69% to the amount billed to account for the effect of taxes on the additional gross revenue. In the City of Bainbridge Island there are deductions for State Utility Tax and for uncollectible accounts, but no deduction for the Bainbridge Island City Tax itself. The easiest way to show this is by a simplified example:

Tariff Charges = $100.00
Effect of City Tax at 6.37% = $ 6.37
Total Billing = $106.37

Revenue Subject to City Tax = 102.50 ($106.37 – State Utility Tax) (State Utility Tax = $100 * 3.873% = $3.87)
Additional Revenue Subject to State taxes: $6.37

PSE Expenses due to City tax:
City Tax: Taxable Revenue of $102.50 X City Ordinance Rate of 6.00% = $6.15
Additional Taxes paid to the State:
Additional Taxable Revenue of $6.37 X State Utility Tax Rate of 3.873% = $0.25
Additional Taxable Revenue of $6.37 X State Filing Fee Rate of 0.2% = $0.01

Tax Related Amount Billed by PSE = $6.37
Tax Related Expenses Paid by PSE = $6.41

In this example PSE has expenses greater than the amount billed, but that is due to rounding and simplification of the example. The main purpose of the example is to show that PSE passes through the effect of, or lack of, deductions allowed by the City imposing the tax and that the State and City taxes both apply to each other and themselves.

OK … that’s why you are being taxed at 6.370% on your electrical bill.

And you also know that PSE is claiming they are losing money (accounting wise) by collecting a City of Bainbridge Island tax of 6% and charging customers 6.370%.

It takes an advanced degree in accounting to sort all this out.

And for an additional .370% of tax per month, four months of asking questions is about all the time I want to put into what I though would be a simple, understandable response.

It’s all appears legitimate and authorized by a complexity of laws and rules permitted by the State Utilities and Transportation Commission in tariff filings and rulings.

I have enough life experience to acquire the wisdom that virtually  nothing in government and taxes is simple and understandable to the average public citizen. This is yet another example.





Bainbridge Island’s 2016 Property Taxes

The annual Valentine’s Day pink envelope from the Kitsap County Treasurer reflecting property assessments made by the Kitsap County Assessor arrived in island postal boxes just over one month ago. Tax statements are worthy of review and  comment because  they represent a significant financial obligation that provides the flow of money from citizen’s assets to the taxing districts doing whatever their taxing district directors and leaders decide to do with the collected funds.

Key observations from the 2016 tax statements:

Median value of a Bainbridge Island residential parcel increased from $486,295 to $535,555.

That’s a 10.1% one year increase. The average residential tax parcel increased in assessor tax value $134.95 a day in calendar year 2015.

Median value residential property tax is $5,746.

Two fees are added to property tax statements. . The City’s stormwater and water quality monitoring (SSWM) program fee of $146.76 and a noxious weed fee of $2.30 add $149.06 to most single family resident and condominium parcels. If the parcel has a second building with a roof exceeding 3,000 sq. ft. or the parcel is accessed by an unnamed  road serving  three or fewer properties and/or has a graveled parking area  (thank you City Council, City staff and Utility Advisory Committee for that very oddball decision), then a higher SSWM  fee might apply.

The Bainbridge Island median combined taxes and fees are $5,895 ($491.25/mo) for taxes due in 2016.

When doing financial planning, the concept of life cycle cost is often used. If tax rates do not go up for the next 20 years,  taxes and fees on a median valued Bainbridge Island residence in the next 20 years would total $117,900. That’s absolutely not going to happen, especially with the new school bonds and the possibility of a new public safety building and any number of other new possible bonds that a growing community will be asked to approve.

Previous posts have calculated the new school bonds will average somewhere between $455 and $559 a year (depends on the island’s growth rate) for the next 22 years alone.

Residents should plan for a median residential property tax and fee obligation of between $140,000 and $150,000 over the next 20 years.

Commercial parcels also continued their climb, but at a lower rate than residential properties … the figure for Bainbridge Island commercial parcels is is not detailed in the 2016 Kitsap County Assessment Book.

The median Bainbridge Island property tax percentage breakdown in order of magnitude (nearest whole %):

• Bainbridge Schools            28%    $1,631/yr    $ 136/mo        Total $18.8M

• State General Tax                22%    $1,261/yr    $ 105/mo        Total $14.5M

• Fire Department                  14%     $  820/yr     $ 68/mo           Total $ 9.5M

• City of Bainbridge Island  12%     $ 667/yr      $ 56/mo           Total $ 7.7M

• Kitsap County                        10%    $ 625/yr       $ 52/mo           Total $ 7.2M

• Bainbridge Park District       9%    $ 494/yr       $ 41/mo           Total $ 5.7M

• Kitsap Regional Library         4%   $ 204/yr       $ 17/mo           Total $ 2.7M

• Kitsap PUD                                  1%   $ 43/yr          $ 4/mo             Total $ 0.7M

Presently 56% of Washington State property taxes goes to schools. With the State’s constitutional issue of funding basic education in the McCleary case being muddled along in the state legislature , that funding percentage will likely increase, but it’s a complete unknown how that will effect either local school or state taxes. Pretty clear schools are going to get a lot more money, but where that is going to come from is the job of next year’s state legislature to finalize.

Probably the three most surprising facts in local Bainbridge Island property taxes:

Bainbridge Fire Department will receive roughly $1.8M more a year from property taxes than the City of Bainbridge Island. Residents are paying  for the additional manning and two new fire stations. The new fire stations will be paid off in 21 years.

Bainbridge Island residents pay $7.2M in taxes to Kitsap County … just a little less than the $7.7M to City of Bainbridge Island. Whether Bainbridge citizens are getting $7.2M in services from Kitsap County is worth questioning by City leaders, especially since any number of Kitsap County services Bainbridge citizens receive are paid for with additional City contracts.

City of Bainbridge Island receives only 12% of the parcel taxes collected from island properties.  But, the City has the authority to collect many other taxes. (Hope to provide a list in the future).

Exclusive of Bainbridge Island, KItsap County median property taxes are about $2,883. Present property taxes on Bainbridge Island are just shy of double those of the other cities and county properties in Kitsap County. 

Bainbridge Island is a high income small community, has miles of waterfront houses, a citizenry that rarely votes down any bond proposal no matter the cost, and has the real estate $$$ axiom of location, location, location. Relatively high property taxes are the result.



COBI Groundwater Monitoring Program: BIG Thank You COBI Water Utility Ratepayers!

The City of Bainbridge Island (COBI) has a groundwater monitoring program. That program monitors some 45 public and private wells to assess the water supply (aquifers) lying beneath the island.

Aspect Consulting is the paid consultant to assist COBI in the groundwater monitoring effort.

It’s not a terribly expensive program, and it provides informative data that is useful to all island citizens.

So why is this program appearing on this money blog?

It appears here because the 75% of island citizens who are not connected to the COBI water utility are getting a civic gift from those ratepayers.

The City pays for this program from the Water Utility Fund.

Is that proper?


Every citizen and business benefits equally from this program.

The groundwater monitoring should be funded from the General Fund, not the COBI Water Fund.

But for years our professional City staff (Finance Department) has continued to rip off COBI water ratepayers by funding this program from approximately 25% of the island who are water utility ratepayers. Add to that we have a Utility Advisory Committee, and they have turned a blind eye on groundwater monitoring funding from the Water Fund … any not just once, but a number of times. Looking out for utility ratepayer interests? Not happening.

Why is the City funding the groundwater monitoring from the Water Fund? Because there are millions of excess dollars sitting idle in the Water Fund … collected over the years by inflated COBI water rates far in excess of either operational or capital improvement needs. Not polite to call it fleecing of COBI water ratepayers, but it was fleecing of COBI water ratepayers.

What is also amazing is that no COBI water ratepayer is complaining, and the Central Ward Council members, where most the COBI water ratepayers live and/or have businesses, continue to remain silent because they don’t pay attention to the City financials or even look at employee cost allocations. And rare is it that anybody watches and comments on City accounting, and if they do, it almost always falls on deaf ears.

So as a non-COBI ratepayer and well owner, thank you City water ratepayers for the many years of paying for Bainbridge’s groundwater monitoring program!

And thank you also for paying for the major portion of the USGS aquifer study!

That was about a half million dollar gift to the non-COBI water ratepayers who are connected to other water systems or have their own wells.

Cost of the New City Logo and Branding

Like most old time cattle ranches, the City of Bainbridge Island has a brand with a logo. Since it is nearing the City’s 25th anniversary, the powers to be in City Hall decided the historic branding logo was in need of updating. The obvious choice to do that was a firm of pretty much locally unknowns from Greenville, S.C., who got a cross country flight and a couple of days to sightsee the island, test some local alcoholic beverages,  and understand our unwavering dedication to trees.

They designed a logo featuring some axes.

Didn’t go over so well. With just about anybody.

City terminated that contract, paying $11,272.50, including $9,572.50 for the work done on the battle axes logo and $1,700 for airfare, accommodations, food ($432 … they ate well!), and a rental car.

Their invoice (City file number opens the invoice):

Arnett Muldro and Associates:  339452

After a number of meetings and reportedly hundreds of e-mails, City opted to hire a local designer,  Kelly Hume Design, Inc.

Kelly came up with the idea of the island outline in a capital B.

Bainbridge Island Logo 2015 copyThe “B” stands for …(drum roll)  …  Bainbridge!

Some on the City Council liked it, but mostly they were tired of talking about something as critical to the community as a logo. Some seemed pleased it had the general color of a still alive conifer needle. The B w/Island logo received the required 4 votes and the Council moved on to more important things, like the decision on the Suzuki property for affordable housing  or to keep the mini forest intact and hand it over to the Metropolitan Park District so they could do something other than housing with the property.

Kelly finished the logo, and in addition the City got an envelope layout, letterhead layout, vehicle signage, and e-mail signature designs.

That effort added up to $12,372,50.

Total new branding logo cost to help celebrate the 25th anniversary of all-island City has been $23,655.00. 

Not counting many hours of staff time.

Kelly Hume Invoices:

1/3: 339917

2/3: 340826

3/3: 340709

It’s your tax money at work … City Council is protecting and ensuring the taxpayers get good value for their dollars.

Next post:  Thank you, City Water ratepayers for footing the bills  for our all-island groundwater monitoring program!